Pros and cons of refinancing your home loan

Before you commit to refinancing, know the pros and cons so you can make the best decision for your financial situation.

Pros of refinancing

  • A lower interest rate could save you thousands and take years of your home loan.
     
  • Lower interest rate = lower repayments. A smaller mortgage payment could mean some positive changes to your lifestyle, an opportunity to invest in other areas, or simply pay down your mortgage quicker.
     
  • Refinancing can be an opportunity to increase the length of your mortgage. It may mean you pay more interest in the long run, but it may suit your financial circumstances to increase the term for immediate payment relief.
     
  • Refinancing can also do the opposite and shorten your mortgage. If you can afford higher repayments, you can pay off your loan faster and spend less on interest.
     
  • You can access the equity in your home when you refinance – perfect if you want to invest elsewhere or splurge on a holiday, a new car or even do some renovating.
     
  • If your current loan includes fees for services you don't use, like redrawing or offset accounts, refinancing provides an opportunity to decrease costs and say goodbye to services you don't need.
     
  • Refinancing can mean changing up the structure of your loan. You can choose to switch to a fixed rate loan for the peace of mind of guaranteed payments for a set period or the entire life of the loan.

TIP: If you want different features, you may not need to move your loan. Talk to your bank and compare their home loans. Moving to a new loan structure with your current lender will be simpler than starting a new account.

Cons of refinancing

  • You may be up for exit fees when you switch from one lender to another, or costs to establish a loan with a new lender – they may charge application fees or valuation fees for your property.
     
  • Lender’s Mortgage Insurance (LMI) may apply to your refinancing loan with a new lender. Even if you already paid LMI when you purchased your home under the original loan, some lenders will require it if you have less than 20% equity in your property. Even though some lenders let you add LMI to your loan and pay it off as part of your mortgage, check if the LMI costs are going to outweigh the financial benefits of refinancing.
     
  • Refinancing can lock you into a loan for longer than you planned – so if you've got plans to move shortly, it could set you back. Move too soon after you've refinanced, and you won't have had enough time to make the refinancing costs worth it, and you may be out of pocket.
     
  • If you’re refinancing because you want access to more home loan features, you may end up paying more fees than you realise.
     
  • New features can also mean new temptation. If your new loan comes with an offset account or redraw facility you didn’t have before, go in with a clear plan for how that is used, and balance the convenience with the risk and fees.

Tip: Refinancing can affect your credit rating – and vice versa. If your credit isn't great, you mightn’t get the home loan deal you want. If your credit history is poor and you keep making refinancing applications, it could make your credit file look even worse. Talk to a trusted lender before you make any applications, or get some independent financial planning advice.

When is refinancing the best choice?

Everyone's financial circumstances are different. Refinancing is a solid choice if you:

  • are moving to a new loan structure with your current lender you trust
  • plan to stay in your current home for the foreseeable future
  • are locking in a lower interest rate, without extending the loan period
  • will still be better off financially even with any refinancing fees.

Did you know?

Refinancing doesn’t always mean switching to a new lender. If you’re a happy QBANK home loan customer, you can talk to us about refinancing to a new loan structure. You can refinance without leaving the award-winning bank that supports you.

Ready to talk home loans and refinancing? Talk to QBANK. Call 13 77 28.

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